pre-construction

Pre-Construction Mortgage Approval

Have you ever purchased a pre-construction home? If you have, then you know how the financing works, but if you are a first time home buyer and looking at purchasing a pre-construction property, then you will want to read this post about pre-construction mortgage approval.

It is common practice and policy by the builders to ask potential home buyers to get a pre-construction mortgage approval to make sure they can be qualified if they were to buy the property right now, even though pre-construction projects normally take over one year to finish.

So what do first time home buyers do? They go to their Mortgage Broker and ask him or her to qualify them on a pre-construction mortgage approval. This is no different than a regular pre-approval. In fact they’re one and the same.

When you have a pre-construction mortgage approval you are showing the builder that if the home was available to be moved in as of now your mortgage was approved and the builder would get paid.

The cautionary tale here is the fact that pre-construction mortgage approvals a.k.a. have a maximum life span of 120 days after which point they expire and there is no guarantee from the lender they will honor the rate hold or anything else on the mortgage approval.

What typically happens with pre-construction mortgage approvals is that the home buyer will return back to their Mortgage Broker no earlier than four months before the actual and final closing date of their property and apply again for an actual mortgage approval. Because this time around the pre-construction project will have been completed and be ready for transfer of ownership to the purchaser in no more than 120 days.

In this second time of applying for the mortgage the process can be more strenuous as you will need to provide a whole lot of documentation to the lender to satisfy all their conditions of approving your mortgage. Here is a list of items that the lender will ask the applicant to provide; this is just an example:

Updated mortgage application

New credit check, which the Mortgage Broker will do

Proof of income

Proof of down payment

Copy of the builders final and signed Agreement of Purchase and Sale including all schedules, waivers, amendments and any other documents that comes with the agreement

Proof that you have at least 1.5% of the purchase price in your personal accounts to cover closing related costs such as legal fee, appraisal fee …etc.

This is why we always recommend that you consult with your Mortgage Broker and work with her or him closely along the path towards your final closing date and home ownership. We recommend that you also work with a Lawyer and even consider asking a Realtor to go through the builder’s documents for you as they can catch certain things that you may not to be able to better negotiate with the price.

We’re here to answer your questions. Contact Us with any questions you have, or if you would like to start your pre-construction mortgage approval application process.